- Days left
Taxpayers often wonder if they should be taking the home office deduction, and this issue is problematic for sure. The first question to be answered is whether or not you even qualify for the deduction. The IRS requires that in order for a space to qualify for the deduction, it must regularly used in connection with a business AND it must be used exclusively for that business.

The "regular use test" requires that you use that space regularly throughout the year for the business. This means that you use the desk or office space more than a few times a year for doing things related to your business.

The "exclusive use test" requires that the space you're claiming be used only for business purposes. So if you've got a spare bedroom with your desk in it, the only space that could qualify for the deduction is that in which the desk is occupied, not the entire room. That space with the desk must also be exclusively for the business in order to qualify. If your child does homework at the desk, it does not qualify. If your wife uses the desk for craft projects, it does not qualify. In like manner, if you use your dining room table for both dinner and business paperwork, you can't do a home office deduction for it.

The economics of the home office deduction may make it better for you to forgo the deduction. The cost of the paperwork and the time spent figuring your deduction might be more than the tax benefit you see from the deduction. Further, taking the home office deduction can have tax consequences once you sell your house, and a tax preparer will be able to tell you whether or not it is worth your while to take a small deduction now but pay later when you sell the house.

Many taxpayers believe that claiming the home office deduction puts them at greater risk of being audited. The IRS won't say one way or another, but they do say that underreporting income by small businesses is a serious problem. There is also the problem of people participating in multi-level marketing companies, business opportunity scams, or pyramid schemes because of the "tax advantages" involved. Many of these opportunities aren't legitimate businesses, so taking any deductions in conjunction with them could get you audited.

There are actually many more detailed considerations that go into determining whether or not you qualify to take a home office deduction, but these are the most important and most common considerations.

More Tax Advice

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Increase your money and finance knowledge from home

How to Avoid Financial Scams

Avoid getting duped by financial scams.

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

TurboTax Articles

Are You Exempt From Health Care Coverage?

The Affordable Care Act, or Obamacare, is an individual mandate that requires all eligible Americans to have some form of basic health coverage by 2014. Those without insurance will receive a penalty when they file their tax returns ? that is, unless they have an exemption. TurboTax's Exemption Check can help you find out whether or not you qualify for an exemption.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

Mortgage Refinance Tax Deductions

When refinancing a mortgage to get a lower interest rate or obtain more favorable loan terms, you're really just taking out a new loan and using the money to pay off your existing home loan. In general, the same tax deductions are available when you're refinancing a mortgage as when you're taking out a mortgage to buy a home.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

Rental Property Deductions You Can Take at Tax Time

Rental property often offers larger deductions and tax benefits than most investments. Many of these are overlooked by landlords at tax time. This can make a difference in making a profit or losing money on your real estate venture. If you own a rental property, the IRS allows you to deduct expenses you pay for the upkeep and maintenance of the property, conserving and managing the property, and other expenses deemed necessary and associated with property rental.

Add a Comment

*0 / 3000 Character Maximum